November 24, 2003

Municipal League Releases
Report on King County’s Fiscal Crisis

The Municipal League of King County released today a report that concluded that King County’s fiscal crisis cannot be addressed adequately without a major change in the County’s responsibilities and focus.  The report, called Shortchanged:  King County’s Fiscal Crisis, notes that in spite of deep budget cuts in recent years, there are insufficient revenues available to fund King County’s General Fund.  For example, over $50 million in cuts to the General Fund budget (approximately 10% of that budget) have been required to balance the 2003 County budget.  Additional cuts of $20–$25 million are anticipated for each of the next three years.

“King County is squeezed by the 1% limitation on property tax growth, the increasing rate of annexations and incorporations, increased justice system and labor costs, and state and federal mandates,” noted David Tarshes, who co-chaired the study committee.  Committee co-chair Rita Brogan noted that, “in addition to providing county-wide services, King County also provides local services to unincorporated King County. In 2003 about $42 million of the money spent to provide local government services was supplied by revenues generated by the County in its county-wide government role.”

Last week, the Municipal League Board of Directors approved the report of the King County Study Committee, which included the following recommendations:

1. King County should divest itself of its role as a local service provider–in order to fulfill its role as provider of county services.
2. All land within the urban growth boundary should be incorporated or annexed to the city or cities within each area’s sphere of influence though a collaboration between King County, existing cities and citizens.  Rural unincorporated communities should be organized into townships or other entities for the purpose of local service delivery, to include local land use decision-making consistent with the Countywide Planning Policies and the Growth Management Act. King County should be more aggressive in encouraging and enabling unincorporated residents to find alternatives to King County for local service provision.
3. King County, along with the other members of the Washington State Association of Counties, should continue to seek, and the Legislature should authorize, additional revenue sources to fund equitably county services.
4. As additional revenue opportunities are explored, the County must also continue to cut costs.

The King County Study Committee, co-chaired by attorney David Tarshes of Davis Wright Tremaine and CEO of PRR, Inc. Rita Brogan, worked with a group of citizens over the last year to develop the study’s findings and recommendations.  The Municipal League of King County regularly sponsors studies on the critical public policy issues of the day, including recent reports on Seattle City Light and on the initiative process.

Download the full report

EXECUTIVE SUMMARY

King County is experiencing a fiscal crisis, which cannot be addressed adequately without a major change in the County’s responsibilities and focus.  Although there have been deep budget cuts in recent years, revenues available to fund expenses of the County’s General Fund continue to be insufficient to support the level of services previously established.  To balance the 2003 County budget, over $50 million in cuts to the General Fund budget (approximately 10% of that budget) were required.  Additional cuts of $20–$25 million are anticipated for each of the next three years.  Major factors contributing to this problem include:

The Municipal League of King County recommends that the following steps be taken to address King County’s fiscal crisis:

Introduction

In August 2002, the Municipal League of King County established a committee to examine the future role of King County government.  The League’s action was precipitated by a concern that King County’s revenue base does not adequately accommodate its mandated functions.  With a growing number of annexations and incorporations and with the growth of its principal revenue source capped by initiative, King County finds itself with a restricted revenue base, increased mandated expenses, a growing sense of competition with cities for shrinking financial resources, and a growing inability to fund services that King County residents value, expect and need.

The purpose of this report is to identify key issues affecting King County’s fiscal health and to make recommendations to improve it.  In developing this analysis, the Municipal League’s King County Study Committee met over ten months with current and former County elected and appointed officials, budget and finance staff, representatives of special purpose districts, representatives of local government advocacy organizations, and regional civic leaders.  As a result of this input, members of the Committee developed a greater appreciation for the complexity, importance and urgency of fiscal reform.

Background

The Municipal League’s King County Study Committee is one of many efforts over the past twenty years to examine King County’s financial and governance predicament.  Some of the more significant of these efforts include the following:

THE ROLE OF COUNTY GOVERNMENT

County governments in Washington are, fundamentally, subdivisions and instrumentalities of state government.  Washington Constitution Article XI §§ 1, 4, 5; State ex rel Taylor v. Superior Court, 2 Wn.2d 575, 579 (1940).  The services provided by a county in this capacity, which this report calls “county services,” are often taken for granted but are essential to the health and safety of the county’s citizens.  These include most components of the law and justice system (e.g., courts, jails, juvenile justice), as well as public health, records and elections.

Cities typically provide local government services, but counties provide these services in unincorporated areas, i.e., areas not within the boundary of a city.  In King County, nearly 350,000 of the County’s 1.7 million residents live in unincorporated areas.  (Over 210,000 of these people live in urban areas that have not been incorporated into or annexed by cities).  King County serves as the local government for these citizens in addition to serving as the county government for all citizens.  The following tables describe some of the county and local services provided by the County.

Download the full report

Source:  Report of the King County General Government Budget Advisory Task Force, June 25, 2003.  (It should be noted that solid waste, which is not listed above, is currently the subject of a dispute between the County and other entities.)

Findings

Approximately 16% of King County’s overall budget is allocated to the General Fund (also referred to as the Current Expense or CX Fund).  The remainder is composed of dedicated funding sources that are required to be spent for designated activities.  In order to balance the 2003 budget, over $50 million in cuts to the General Fund budget were required.  The shortfall in revenue is expected to continue into the foreseeable future, requiring cuts in the range of $20-25 million in each of the years 2004, 2005 and 2006.  The continuing General Fund deficits that the County faces are due to a combination of systemic issues relating to revenue, expenses and the County’s dual system of responsibilities.

Revenue

Some 44% of King County’s General Fund revenue comes from the property tax, which is limited by initiative to a 1% annual growth rate (plus new construction).  Moreover, since 1985, the number of new cities in King County has nearly doubled, from 21 to 39.  The new cities have incorporated nearly all of the high-value tax base that was once in unincorporated King County.  These two developments have left King County with inadequate revenues to fund public services and infrastructure.  Unlike cities, counties do not have the authority to impose other taxes such as a utility tax or a B&O tax.  Overall, tax revenues supporting the General Fund will grow at less than 2% per year, absent voter or legislative approval of tax increases exceeding the limit set by Initiative 747.

Revenue problems are certainly not unique to King County.  Cities, for example, also suffer from the limitation on property taxes.  The November 2002 report of the Washington State Tax Structure Study Committee (Gates Commission) concluded there are broad and fundamental inequities in Washington’s tax system, and proposed an array of potential changes that could significantly improve the financial position of not only the state, but counties and cities as well.  These subjects are outside of the scope of this study, but merit serious consideration.

Expenses

In contrast to the less-than-2% growth rate for General Fund revenues, General Fund expenditures for King County have grown at 5‑1/2% to 6‑1/2% per year.  Salaries and wages (45%) and employee benefits (15%) account for the majority of General Fund expenditures.  The growth rate for these expenditures has been driven, in large part, by cost of living increases, by a growth rate for health care and other benefit costs of nearly 10% per year (paralleling national experience in both the public and private sectors), and by the fact that over 25% of the FTE employees in the General Fund are eligible for salary arbitration.  The County has moderated the impact of salary and benefit increases by reducing the number of employees in recent years.

More than 70% of the General Fund budget is used for law and justice functions, which are required by state and federal mandates.  The percentage of the General Fund budget represented by law and justice has increased steadily over time and is projected to continue to increase.  Much of this budget (61%) is controlled by separately elected officials (court, prosecutor, sheriff).  The remaining 39%, which is managed by the executive, goes primarily to mandated Adult and Juvenile Detention services.  As a result, the ability of the County Executive to exercise effective centralized budget management control in the area of law and justice is significantly hampered.

Of course, increasing costs for mandated services affect the provision of non-mandated services.  Increasing costs associated with mandated functions eat away at resources that would otherwise be available for non-mandated functions.

Responsibilities

King County’s fiscal crisis is related to the dual nature of its responsibilities.  King County is both the regional arm of the state (providing jails, public health, transit, waste disposal, and courts countywide) and a local government (providing local services to the roughly 350,000 residents of unincorporated King County).  The County as regional government is subsidizing the County’s local government function.  In 2003, the County estimated that approximately $42 million of the money spent to provide local government services is supplied by revenues generated by the County in its role as county service provider.

Time for Change

In its 1991 report, the Municipal League of King County stated that “restructuring of governance is long overdue in King County.”  It recommended that local officials involved in the Regional Governance Summit work together to develop a reform proposal capable of gaining wide public support and stated:  “If a model is not forthcoming from the Summit shortly, the League is prepared to recommend a citizen’s proposal for restructuring governance in King County.”

In the years since the Municipal League’s 1991 report, the fiscal health of King County has been undermined by short-sighted tax limitations and an over-reliance on antiquated and unstable revenue sources.  In the view of some, inadequate management has also played a role.  Efforts of King County officials to obtain authorization for additional sources of revenue, such as utility taxes in unincorporated areas, have, thus far, been unsuccessful, with the exception of authorization for a voted sales tax increase, receipts of which must be shared with the cities.

There has been much discussion about the need for governmental and fiscal reform for King County, but there has been insufficient public recognition and political will to achieve fundamental and necessary change.  King County and the cities tend to compete for the same turf, while issues such as a rational framework for regional decision-making tend to be neglected.  The people of King County suffer the impacts of a dysfunctional system every day in the form of threatened park closures, reduced social services, and inadequate infrastructure.  The long-term effects may come in the form of reduced credit ratings and a downward cycle of degraded infrastructure leading to economic stagnation.

There is no way to escape the dilemma currently faced by King County’s General Fund without a structural shift in the County’s responsibilities and finances.  We proceed to discuss recommendations for implementing such a shift.

RECOMMENDATIONS

The task ahead is daunting and politically charged, but bold and deliberate action is needed to stem King County’s spiral of decline.  The Municipal League of King County therefore recommends the following:

1.                King County should divest itself of its role as a local service provider–in order to fulfill its role as the provider of county services.

Rationale:  King County can no longer afford to be both a local service and a county service provider.  There are workable alternative mechanisms for local service provision, but none for countywide service provision.

2.                All land within the urban growth boundary should be incorporated or annexed to the city or cities within each area’s sphere of influence though a collaboration between King County, existing cities and citizens.  Rural unincorporated communities should be organized into townships or other entities for the purpose of local service delivery, to include local land use decision-making consistent with the Countywide Planning Policies and the Growth Management Act. King County should be more aggressive in encouraging and enabling unincorporated residents to find alternatives to King County for local service provision.

Rationale:  Several groups, including the 1997 Charter Review Commission and the Municipal League of King County, have previously recommended that King County discontinue providing local services and strengthen its role of county service provider.  Options for local services in unincorporated areas include townships and special purpose districts.  Townships, which are authorized by Article XI § 4 of the State Constitution, and which would have their own taxing authority, were discussed in the Municipal League’s 1991 report.

Although some have suggested that the number of special purpose districts in the County contributes to inefficiencies, the Committee has not been persuaded that forced elimination or consolidation of special purpose districts would necessarily lead to cost savings, improved service quality or better democracy.  There is some evidence that, through cooperation, contracting and consolidations where circumstances warrant, special purpose districts, townships and municipalities can work together to provide services in an efficient, accountable and flexible manner.

In order to make this significant change, it will be necessary for major public dialogue to take place on the merits of the concept, as well as on what mechanisms could replace King County as local service provider.  The Municipal League offers to play a leading role in convening such conversations.

3.                King County, along with the other members of the Washington State Association of Counties, should continue to seek, and the Legislature should authorize, additional revenue sources to fund equitably county services.

Rationale:  King County cannot continue to operate under conditions of insufficient resources to fund the growing cost of existing services.  Counties have more limited access to revenue sources than municipalities, and must rely primarily on property taxes for their General Funds, which are capped by a 1% (plus new construction) limit on property tax increases imposed by Initiative 747.  In today’s economy, no entity can survive with growth from its primary source of income limited to 1%, no matter how frugal it is in limiting expenses. 

The Committee heard discussion of several additional potential sources of revenue.  The Association of Washington Cities, Washington Association of County Officials and Washington State Association of Counties endorsed proposed legislation that would authorize counties to impose a utility tax, comparable to the utility tax levied by municipalities, in urban unincorporated portions of counties.  Thus far, the Legislature has failed to authorize such a tax.  Revenue from an unincorporated-area utility tax would help significantly, though the League is not certain that it would be sufficient to fix the current structural gap between revenue and expenses by itself.

The County’s options may also be more flexible than current practice provides with respect to revenue generated by the Unincorporated Area Property Tax.  Revenues from this tax are available for any general government expenditure benefiting the unincorporated area, but the County risks loss of significant state-shared gas tax revenue if revenues are diverted to purposes other than roads.  State legislative action removing this limitation would assist the County in responding to the areas of greatest need.

State funding of law and justice expenses is another revenue source that the County should explore with the state legislature.  Law and justice expenses make up over 70% of the County’s current expense budget.  That percentage increases annually.  As a subdivision of the State, the County is mandated to provide essential services such as courts.  Yet Washington ranks 49th among states in the degree to which state funding contributes to providing this service.  While the Committee recognizes that the State also has significant financial challenges, the Committee believes that the State should contribute more to the funding of the court system.  Authorization of increased filing fees would also contribute to funding of the law and justice system.

More revenue is needed so that King County can play its essential role as a county service provider, even if the County is relieved of its responsibilities as a local service provider.  If responsibility for local services is divested, some of the County’s revenue should be allocated instead to townships or other local service delivery mechanisms, rather than the County, to fund the provision of local services.

4.                As additional revenue opportunities are explored, the County must also continue to cut costs.

Rationale:  The County must address its fiscal problems by attacking both the revenue and expense side of the equation.  Thus, the County must continue its efforts to control expenses.  The following is a non-exhaustive list of opportunities to examine:

Conclusion

All of us – King County, the County’s citizens and cities, and the State Legislature – are challenged to grapple with the complex issues that face us.  Clearly, “business as usual” will only exacerbate the fiscal crisis that faces King County. It is the hope of the Municipal League of King County that this report will contribute to informed consideration and courageous resolution of this crisis.[1]

Download the full report

The Municipal League of King County
Board of Trustees

Tom Albro
Chair, Railsafe, Inc.

Beth Arman
Renton Technical College

Jeff Ballaine
HomeStreet Bank

Putnam Barber, Chair
President, The Evergreen State Society

Elma Borbe
Citizen Activist

Jill D. Bowman
Stoel Rives LLP

Patricia (Pat) Bowman
Human Resource Manager, retired

Rita Brogan
CEO, PRR, Inc.

Bruce Carter
Judge Pro Tem, Seattle

Kevin Carter
Safeco

Peter Coates
Building and Construction Trades Council

Christopher Cooper
The Children’s Museum

Sandra Driscoll
Kent and Federal Way City Attorney, retired

Keven Franklin
Affirmative Action Program Coordinator King County Office of Human Resources

Norma Jean Hanson
Norma Jean Hanson Paralegal Services

Rowan Hinds
Mayor of Issaquah, retired

Andee Jorgensen

Renton Technical College

Robert S. Klein
McNaul, Ebel, Nawrot, Helgren and Vance

Tami Landburg
Kaplan Companies

Steve Marshall
Snohomish County PUD

Robert Neate
Puget Sound Energy

Jennifer Piccolo, Secretary/Treasurer
Citizen Activist

Randy Revelle
Vice President, Washington State Hospital Association; former King County Executive

Dr. Bob Roberts
President Emeritus, Renton Technical College

Lucy Steers, Vice-Chair
Public Involvement Consultant

Harold Taniguchi
Director, King County Department of Transportation

David Tarshes
Davis Wright Tremaine

Kate Tate
Weyerhaeuser Company

Brian Thomas
Former State Representative, 5th District

Philip Thompson
Perkins Coie

Mark Troxel
City of Seattle

Wes Uhlman
Wes Uhlman & Associates; former mayor of Seattle

THE MUNICIPAL LEAGUE OF KING COUNTY
King County Study Committee

 *Municipal League Board members